Amazon vs. Patagonia: A Tale of Two Retail Giants

What's going on everybody! Welcome to the First Class Founders podcast. The goal of this show is to equip you with powerful mental models and frameworks so that you can master the art of decision-making. In each episode, I introduce and apply these concepts in real-world scenarios. My name is Yong-Soo Chung and I'm the Founder of Urban EDC, a fast-growing e-commerce brand selling everyday carry gear, and GrowthJet, a Climate-Neutral Certified third-party logistics company. 

In episode 5, we discussed the three main considerations when it comes to bootstrapping vs. fundraising: stakeholders, lifestyle, and the type of business. If you haven't listened to episode 5 yet, you might want to listen to that episode first. I'll link to it in the show notes.

We also began to talk about how a bootstrapped company needs to prioritize cash flow and stay profitable above all else, while a venture-backed company flips this script by "blitzscaling" — moving as quickly as possible, maximizing time over money. 

In today's episode, we're going to compare the journeys of two iconic retail companies: Patagonia and Amazon, and two remarkable billionaire entrepreneurs: Richard Branson and Elon Musk. I'm also going to discuss strategies on how to differentiate yourself when you're a bootstrapped company by referencing Seth Godin's purple cow concept. Last but not least, we'll introduce and apply the mental model of First Principles Thinking and how you can use it to come up with innovative solutions to complex problems.

By the end of the episode, you will have a better understanding of which path you want to take as an entrepreneur and what kind of company you want to build.

Let's get down to business!

Okay, let's begin with Patagonia and Amazon. 

I love this example because it really demonstrates the differences in approach between bootstrapping vs. fundraising nearly perfectly.

To understand this, here's a short history lesson of both Patagonia and Amazon.

Patagonia, which is an entirely bootstrapped company, was founded in 1965 originally as Chouinard Equipment. The company was an early pioneer in the sustainability movement producing durable goods that not only lasted a long time but also protected the environment. This was particularly important for climbing gear. As rock climbing became a popular outdoor activity, visible marks were left on the rocks as climbers went up and down the sides of mountains.

Patagonia championed the idea of clean climbing, preserving nature as nature intended while changing the art of the sport and the ethos of the community. It was an important part of climbing’s history — and an important part of climbing’s future.

Today, Patagonia still exemplifies this important mission of protecting our planet with innovative initiatives such as Worn Wear, a shop dedicated to trading in your worn Patagonia gear and reselling it. Its billionaire founder Yvon Chouinard recently announced that he's giving away all of Patagonia’s shares and future profits to a charitable trust, to help fight climate change.

Earlier in the episode, we discussed that one of the key factors in deciding between bootstrapping and fundraising is who the stakeholders are. Well, Patagonia now claims on its website that “Earth is now our only shareholder." This bold statement stays true to the company's original mission.

Amazon, on the other hand, was born during the frenzy of the dot-com era in the 1990s and it grew at a record pace with plenty of funding. Starting off with selling just books, it quickly expanded into CDs and DVDs, then quickly evolved into the everything store.

Jeff Bezos, the founder of Amazon, has often said that his focus was on three main things: fastest delivery times, cheapest prices, and biggest selection of goods. For better or worse, Amazon has completely changed the world we live in. 

Amazon grew at all costs without much consideration for the harmful environmental impact of its growing logistics business or even for its own employees. In fact, there have been several well-documented strikes outside Amazon warehouses with employees demanding better working conditions and more stable job security.

Early employees joining Amazon jumped at the opportunity of changing an industry and getting rewarded financially by sacrificing everything that they had including their own personal lives.

We discussed lifestyle as one of big considerations when choosing between bootstrapping and fundraising. In this case, early Amazon employees went all in and had no choice but to do so. They were put on a rocket ship, and if they weren't going to help, they were kicked off the ship as quickly as they got on the ship. In fact, this is exactly what happened with a few key early employees at Amazon.

On the other hand, the employees that joined Yvon Chouinard at Patagonia in the 1970s cared far more about the mission of the company of protecting the planet than working nonstop with the hopes of hitting it big financially. Patagonia also cared deeply about its employees, fostering relationships that extended far beyond the workplace. 

One of the more impressive company benefits was Patagonia's onsite childcare program. Patagonia believed that providing onsite child care was a moral imperative. This was possible only because Patagonia had no other investors and didn't have to surrender to the needs of other shareholders.

You can see how vastly different the two companies are run and how that impacts the prospective employees joining the company.

Just as how employees choose their employer based on their values, customers choose the companies they support based on their own values as well. Those who deliberately choose to support Patagonia are doing so because they themselves align with the values of Patagonia's mission. Amazon's customers, on the other hand, value speed, convenience, and price, which is what Amazon excels at.

Earlier in the episode, I mentioned that the type of business you're building is important in deciding between bootstrapping and fundraising.

As a bootstrapped company, how do you make sure you stand out from the crowd? 


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Okay, let’s get back to Patagonia. 

In Patagonia's case, their clothing and equipment are great but they aren't necessarily reinventing an industry. So they differentiate themselves from other outdoor apparel companies by being loud in their strong values and staying true to their ambitious mission.

Seth Godin talks about how in today's world, building an average company just doesn't cut it. He says that you have to build a remarkable company that stands out from the crowd. He dubbed the term "purple cow" to describe this concept. Imagine for a minute, you're on a road trip. You've been driving for hours and there's nothing to see for miles. Then, you spot a brown cow. "Wow, a cow! Haven't seen one in a while," you think. Then a couple of minutes later, you see another brown cow, then another one... and another one. That first brown cow you saw just a couple minutes ago doesn't seem as special anymore. Why is that?

As you keep driving down this country road, within a sea of brown cows, you notice something peculiar. Is that a... purple cow that you see? You do a double take and sure enough, there's one lone purple cow munching on some grass among all the other brown cows. You can't help but to stop your car and take a few photos of this remarkable purple cow to share with your friends. This is the power of differentiation.

If you're a bootstrapped company, chances are, you will be competing in a sea of other similar companies. Just like Patagonia, you can stand out from the crowd by embodying strong values that make your company unique and special.

Now, contrast this with Henry Ford, who once said, "If I had asked people what they wanted, they would have said faster horses.” While we can't confirm that he actually said this, that's beside the point. He took an industry, in this case, personal transportation, and reimagined it from the ground up. In doing so, he was the very first to mass-produce an automobile, specifically the Model T. 

From this example, we can learn another great mental model called First Principles Thinking. Henry Ford was the first person in history to produce a car at a price that everybody could buy. Before this, people were getting by on bikes, on foot, and on horses. This is a remarkable accomplishment that changed the course of human history forever.

Thinking from first principles allows you to think outside the box and see what is possible using a whole different approach. Instead of trying to build faster horse carriages by making the carriage more aerodynamic or by reducing the weight of the carriage using lighter materials, Ford decided to mass produce the first automobile. This is first principles thinking at its finest. 

Here is a more modern example of how first principles thinking can completely shift the way we approach a problem.

But before we do, I want to tell you about the First Class Founders Membership.

All billionaires have one thing in common: they master the art of decision-making. Throughout their lives, they collect great frameworks and mental models and call on them when needed. And that is why First Class Founders exists. The main benefit, the reason why you want to listen to First Class Founders, the reason why you want to upgrade and gain access to all of the members-only perks is because First Class Founders gives you the tools to build your very own problem-solving toolkit so that you too can become a great decision maker like Charlie Munger, Jeff Bezos, and Elon Musk. If you want to get the most out of First Class Founders, head on over to firstclassfounders.com/join. You'll get access to monthly bonus episodes delivered to you via a private, members-only podcast feed. You'll also be able to participate in a monthly Ask Me Anything episode, also released through the private podcast feed, which by the way, removes all interruptions like this one so you can enjoy a clean listening experience. Your support will go directly towards making the First Class Founders premium members-only experience even better so that all of us can keep learning and growing together. Again, you can go to firstclassfounders.com/join.

Today, the United States spends 40% more per capita on healthcare than any other Western industrialized nation. Age-related diseases can be quite costly to maintain. You could approach this problem by thinking of ways to reduce the cost of the treatments and medications. Logically, this makes a lot of sense.

Now, let's put our First Principles Thinking cap on. How would you solve this? I'll give you a minute to think about it.

Okay, so the problem we have is that Americans are spending too much on healthcare, for age-related diseases in particular. Instead of tackling this problem by reducing the cost of the treatments and medications, what if we prevented the onset of age-related diseases for the general public in the first place?

Human longevity research has come a long way and is quickly gaining momentum. Innovator and futurist Ray Kurzweil, often discusses the concept of “longevity escape velocity,” or the point at which science can extend your life for more than a year for every year that you live. As crazy as this sounds, according to Kurzweil, we are a lot closer to this inflection point than you might think. In 10 to 12 years, Kurzweil thinks that the general public will hit longevity escape velocity.

When this happens, the problem of costly medical bills caused by age-related diseases should no longer be an issue. Thinking in first principles can lead to some surprising and impactful solutions.

Elon Musk is an entrepreneur who often thinks in first principles. Reimagining public transportation, he came up with the concept of the Hyperloop which is meant to replace local rail transportation and possibly even short domestic flights once the network is fully built out. This is a radical approach rather than building another high-speed rail system that's just slightly better than our current infrastructure.

With Tesla and SpaceX, Musk is pushing the boundaries of what's possible, pushing into new frontiers that have yet to be explored by humanity.

Richard Branson is another billionaire entrepreneur who approaches business very differently from Elon Musk. Branson's Virgin brand started with a simple student magazine, which he launched as a 16-year old back in 1968. The magazine was created to provide an alternative to the stale publications and school magazines that were readily available at the time.

In other words, Branson started selling student magazines in a crowded industry so he differentiated it by providing a more hip alternative to the other options. His magazine was the purple cow among all the other brown cow magazines.

Branson kept his business framework simple. He wanted to shake up existing commoditized industries by creating his own purple cow versions within those markets. He repeated this framework for the airline industry, the mobile phone industry, the film industry, and more. He didn't succeed in all markets but he didn't need to. The success of his company Virgin Group is well documented.

Branson is also known for his bold publicity stunts, which essentially have the same effect as the purple cow. In 1996, the Virgin Group launched Virgin Brides, a wedding and bridalwear store. To commemorate the launch, Branson shaved his beard and wore a wedding dress and makeup. You can imagine how much publicity this would bring to Virgin Brides differentiating it from the sea of other bridalwear stores.

Now, let's tie this all together back into the topic of bootstrapping vs. fundraising. Both Elon Musk and Richard Branson are brilliant entrepreneurs in their own ways. Musk embraces the style of a VC-funded company, while Branson prefers the style of a bootstrapped company.

As you think about your own entrepreneurial journey, do you want to be a Richard Branson-type entrepreneur or an Elon Musk-type entrepreneur?

Likewise, ask yourself if you resonate more with a Patagonia business or an Amazon business.

I'll leave that up for you to answer. 

On the next episode of First Class Founders, we go deep into customer journeys and how to craft a 10-Star customer experience. There is a simple framework for how to think about your customer experience and how customer support fits within it. You'll want to check this one out if you're running any type of business with paying customers.

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Thanks for listening and I’ll see you on the next episode of First Class Founders!